Tax Updates

Call Us Now To Schedule An Appointment!

Secure Plus Financial

Essential Steps to Optimize Your Retirement Plan

Are you ready to optimize your retirement plan and take advantage of tax benefits? Whether you are an individual or a business owner, establishing and contributing to a retirement plan can offer significant financial advantages. Here’s what you need to know to maximize your retirement savings this year.

Establish Your Retirement Plan

Have you implemented a retirement plan for yourself and your business?

If not, and if you have some cash, you can create a retirement plan and get a tax deduction.

For most contribution plans, such as 401(k) plans, you (the owner-employee) are considered an employee and an employer, whether operating as a corporation or a sole proprietorship.

You can contribute both as an employer and as an employee.

Claim up to $15,000 from the Improved Retirement Plan Start-Up Tax Credit

Establish a new qualified retirement plan (like a profit-sharing plan, 401(k), or defined benefit pension plan), SIMPLE IRA, or SEP, you can qualify for a non-refundable tax credit:

  • $500
  • Or the lesser of the number of eligible non-highly compensated employees by $250, or $5,000.

This credit covers ordinary and necessary expenses for establishing or administering the plan and retirement-related education for employees.

Claim the New 2023 Small Employer Pension Contribution Tax Credit (up to $3,500 per employee)

The SECURE 2.0 Act introduced a new credit for employer retirement plan contributions starting in 2023. This credit is up to $1,000 per employee, starting from the plan’s start date.

  • 100% in year 1
  • 100% in year 2
  • 75% in year 3
  • 50% in year 4
  • 25% in year 5
  • No credit in year six and beyond

Example: If you contribute $1,000 to each of your 30 employees’ retirement accounts, you earn a $30,000 tax credit.

Credits are reduced by 2% for each employee if you have 51 to 100 employees and are unavailable if employees earn over $100,000.

Claim $1,500 Total from the New Automatic Enrollment Tax Credit for $500 each of three years.

The SECURE Act provides a $500 per year credit for up to three years for small employers who add an automatic contribution arrangement to a 401(k) or SIMPLE plan.

This $500 credit is in addition to the start-up credit and applies to new and existing plans. No extra spending is needed—add the auto-enrollment feature.

Roth IRA Conversion

Consider converting your traditional IRA or 401(k) to a Roth IRA.

First, calculate the tax you’ll owe on the conversion. With this number, you can plan how much cash you need to cover the taxes.

Reasons to convert to a Roth IRA

  1. Withdraw contributions at any time, penalty-free and tax-free.
  2. Withdraw converted funds tax-free after five years (with a 10% penalty if withdrawn earlier).
  3. No taxes on qualified withdrawals after age 59½ provided the account is five years old.
  4. No minimum distributions are required at age 72, allowing the Roth IRA to grow tax-free until death.

Retirement Plan FAQs

Reducing your taxable income provides a way to attract and retain employees. It helps you save for your future with tax-deferred growth.

The start-up tax credit is for small businesses with 100 or fewer employees. It provides a credit of up to $5,000 per year for the first three years to cover the administrative costs of setting up a new retirement plan.

It allows small business owners to claim a tax credit for contributions made to employee retirement accounts, up to $1,000 per employee for the first year, with a gradually decreasing percentage over the next four years.

You can claim a $500 annual credit for three years if you add an automatic enrollment feature to your retirement plan. This credit is available for both new and existing plans.

Converting to a Roth IRA allows for tax-free withdrawals in retirement. It avoids required minimum distributions (RMDs) after age 72, offering greater flexibility and potential tax savings.

Yes, contribution limits vary by plan type. For example, in 2024, the limit for 401(k) contributions is $22,500, with an extra catch-up contribution of $7,500 for those aged 50+.

You need to maintain detailed records of contributions, administrative costs, and any other expenses related to the retirement plan. This includes receipts, invoices, and payroll records.

Work with a tax professional or financial advisor to understand IRS rules, keep accurate records, file necessary forms, and ensure your plan meets all regulatory requirements.

Eligibility generally requires being a small business with 100 or fewer employees. Specific credits may have additional requirements, such as a new plan setup or adding automatic enrollment.

Yes, some credits, like the automatic enrollment tax credit, apply to new and existing plans. However, start-up credits are only available for new plans established within the first three years.

Optimizing your retirement plan can help you secure your financial future and maximize your tax benefits. You can make the most of your retirement savings by understanding and implementing strategies like setting up a retirement plan, claiming start-up tax credits, and considering a Roth IRA conversion.

Thinking About Converting Your Traditional IRA to a Roth IRA?

Schedule a consultation with our experts to explore the benefits and optimize your retirement savings.

Secure Plus Financial

Related Tax Updates

Essential Steps to Optimize Your Retirement Plan

Are you ready to optimize your retirement plan and take advantage of tax benefits? Whether you are an individual or a business owner, establishing and contributing to a retirement plan can offer significant financial advantages. Here’s what you need to know to maximize your retirement savings this year.

Read More »